Hold your tears for Japan Inc.

By Alex Taylor III, senior editor

(Fortune) -- A fair amount of crocodile tears are being shed on this side of the Pacific over the travails of Japanese automakers.

When Toyota (TM) announced that it expected to lose money on its auto operations for the first time since 1950, it became front-page news -- even in papers outside Detroit. A good chunk of the loss is attributable to Toyota's shuttered truck plan in San Antonio, Texas, which has been the source of unconcealed glee in Detroit, so pleased are domestic automakers to see someone making mistakes besides themselves.



Then there was Honda's threat to move more production offshore if the Japanese government couldn't figure out a way to keep the yen above 100 to the dollar. A cheap yen has helped finance much of Japan's success selling cars in the U.S. and Honda's comment was tacit admission of what has long been suspected here: that the Japanese government manipulates swings in its currency to benefit its export-dependent manufacturers.

Finally, there was the surprising -- and still unconfirmed -- report out of Japan that Toyota was considering replacing president Katsuaki Watanabe because of this year's loss. Watanabe would be replaced by vice president vice president Akio Toyoda, a member of the Toyoda family that still controls the automaker despite holding only a tiny fraction of the stock.

On one hand, the move would be surprising, since Watanabe is renowned as a cost-cutter and he has moved quickly and aggressively to bring Toyota's production in line with plummeting demand. On the other, Akio Toyoda has always been seen as heir presumptive to the job of company president and his ascendancy has been a question of when, not if.

Jolting as all these developments are, they do little to undermine the long-term strength of the Japanese auto industry. While the Detroit Three will be preoccupied with questions of politics and survival over the next few months, companies like Toyota and Honda (HMC) are already laying the groundwork for future success.

For evidence, you need only keep an eye on announcements that will be coming out of the Detroit auto show next month.

Already the world leader in gas-electric hybrids, Toyota will be unveiling the third generation of its groundbreaking Prius, along with the first dedicated hybrid model to wear the Lexus badge. Toyota has promised to cut the premium for the hybrid drive in half for this model and it would be foolish to bet against it. The company is well along on its goal of selling one million hybrids a year.

In fact, Toyota will be making a whole raft of announcements aimed at solidifying its position as one the greenest auto companies on the planet. The centerpiece will be the announcement of an all-electric, battery-powered concept car, probably based on the Smart-sized iQ. Other automakers sometimes view concept cars as so much eye candy -- to titillate analysts and journalists but not to be taken seriously as business propositions. Not Toyota. Every concept has a purpose and it is seldom frivolous.

For its part, Honda is introducing the next generation Insight hybrid and expects to sell 100,000 of them in the U.S. annually. Falling gas prices will make that difficult in the short run, but the Insight should far outperform more ballyhooed efforts from General Motors (GM, Fortune 500) and Ford (F, Fortune 500), which are also introducing new hybrid models.

Toyota and Honda are making the appropriate noises about supporting the Detroit Three in their hour of need. They honestly don't want any of the companies to fail because it might invite a backlash against them, either in Washington or the salesroom floor. Heaven forbid that the United Auto Workers look toward their assembly plants in the South and try again to organize their non-union workforces.

But don't expect them to pull any punches, either. They are pursuing what they see as their individual destinies -- satisfying customer needs around the world with safe, clean, and affordable transportation.

If any competitors should fall along the way as they pursue their mission, so be it.

source : http://money.cnn.com/2008/12/23/autos/japan.inc.fortune/index.htm?postversion=2008122311